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What types of Swiss bank accounts are available for children? What is the best solution for saving money towards a child's education or financial future?
Many parents and benefactors like the idea of giving a child a financial head start in life by placing money in an account or trust. In Switzerland you have a number of specialized savings accounts which allow you to save towards a child’s future.
1. Youth savings accounts
If you want to guarantee that the child will receive the money or you worry that you may dip into the savings if you come up against financial difficulties, then a youth account is a safe choice. This type of account can only be opened by a child’s parents. Assets in youth accounts are held in the child’s name and can only be administered – but not withdrawn – by the child’s parents. When the child reaches legal age, the account is automatically converted to a regular savings account in their name.
Pros:
The interest rates available for youth accounts generally match those for gift savings accounts. An April 2017 comparison of interest rates shows that Credit Suisse pays 1% interest on up to 25,000 francs of deposits in a CS youth savings account - compared to 0.5% with its flagship Bonviva Platinum savings account and just 0.15% interest with its Bonviva Silver savings account. UBS pays 0.5% interest per annum on up to 20,000 francs of deposits in a UBS Youth Savings Account. Youth accounts from some regional banks including Caisse d'Epargne de Cossonay and Caisse d'Epargne Riviera offer even higher interest rates, but are only available to regional residents.
The primary advantage of a youth savings account is that the money is held in the account until the child reaches legal age. Although a parent receives account statements and handles any correspondence with the bank, the account is in the child’s name. Nobody can touch deposits until the child reaches legal age and receives control over their account.
Cons:
The preferred interest rates generally only apply to a certain amount of assets (typically 20,000 to 25,000 Swiss francs). Any deposits above that amount earn the same lower interest rates as regular savings accounts. It is also important to note that youth accounts are not fixed-rate deposit accounts. Interest rates can decrease or increase regularly.
Because only a child’s parents can open and manage their youth account, anyone who wants to gift the child money will have to either do this through the parents or make a deposit directly into the account. That makes this a poor choice for friends, relatives or philanthropists who want to surprise the family with a gift when the child reaches adulthood.
2. Gift savings accounts
Gift savings accounts can be opened by any adult – not only a child’s parents. The account is administered by the adult who opens it. When the child comes of age, the account is automatically converted to a regular savings account in their name. These provide a flexible savings vehicle for any person who wants to invest in a child’s future. [/en/gift-savings-accounts-comparison]
Pros:
The biggest advantage of depositing money into a gift savings account is that you earn a higher rate of interest than you would earn by keeping that money in a regular savings account. A quick look at interest rates listed in the moneyland.ch savings account comparison (April 2017 rates) shows that Migros Bank, PostFinance, the Zürcher Kantonalbank and many other Swiss banks pay out 10 times more interest on gift savings account deposits than they pay for regular savings accounts. The CA Junior account from Credit Agricole Financements Suisse currently has one of the most generous interest rates. [/en/credit-agricole-financements-suisse/savings-accounts/epargne-junior]
Another advantage is that, like most Swiss savings accounts, gift savings accounts do not normally have an annual fee.
Cons:
High interest rates only apply to a certain amount of assets. Most banks pay the preferred interest rate on up to 25,000 Swiss francs of deposits, with regular savings account rates being applied amounts in excess of that amount. The CA Junior account from Credit Agricole pays the preferred interest rate on up to 50,000 francs of deposits.
Gift savings accounts are not fixed-rate deposit accounts. Interest rates can decrease or increase at any time.
Unlike youth accounts, the money in the account normally remains in the possession of the account opener until it is transferred to a new savings account in the child’s name when the child comes of age. Assets are not considered a gift until they are transferred to the child when they come of age. This leaves plenty of room for temptation on the part of the account administrator to withdraw the money ahead of schedule.
3. Gift investment accounts
Some Swiss banks also offer gift investment accounts for children, and it is important that you understand the difference between these and gift savings accounts. A gift investment account is based on an investment fund. The money you deposit for the child is invested in the fund and returns are based on fund gains.
Pros:
Gift investment accounts can potentially deliver higher returns than you would earn through interest because assets are invested in securities and other investment vehicles which have the potential to grow exponentially. Because savings are normally held in gift accounts for many years, the chances of earning a profit are fair.
Cons:
Returns are not guaranteed. If the fund performs badly, the account can even lose money. This makes gift investment accounts a poor choice if you have low risk tolerance or simply want to set aside money for a child.
Investment fund fees (TER) are debited directly from the money in the account. These fees can be substantial and if investments perform poorly, costs may actually exceed earnings.
4. Alternatives
There are a number of alternatives for adults hoping to contribute towards a child’s financial life, but these will generally have to be managed by the adult in question. Exchange traded funds (ETFs) are a low-cost, passive investment vehicle which are ideal for long-term investments. Swiss fixed deposits (compare these here) and medium term notes (compare these here) are other long-term, passive savings and investment options which provide a lot of security, albeit at much lower annual interest rates than children’s savings accounts.
You can easily compare gift savings accounts and youth accounts using the unbiased moneyland.ch savings account comparison. Simply select the child’s year of birth to view and compare all available savings accounts for children.
Important: Deposits held in child savings accounts are subject to wealth tax. Interest or fund dividends earned count as taxable income for income tax purposes. If the child in question will reach legal age at around the same time that you reach 3a retirement asset withdrawal age (5 years ahead of legal retirement age), placing deposits in a 3a retirement savings account rather a child savings account may be tax beneficial. This depends on the amount in question and on your canton’s taxes on 3a withdrawals and gifts. You can compare 3a retirement accounts here.
Best regards from Moneyguru
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